Foreign interest, dividends and pensions fall under Chapters 6, 7 and 8 of IRS Publication 17 (printed pages 54 to 77 in the 2025 edition; the 2023 and 2024 editions have the same chapters). The chapters assume domestic income, so Canadian and Indian interest, pensions, CPP and OAS get little direct coverage. It matters to U.S. citizens and residents with such income. These are unofficial study notes in our own words; the IRS publication controls.
What Pub 17 says about foreign interest, dividends and pensions, and where it stops
The Reminders on printed page 3 tell a U.S. citizen to report income from outside the United States, including interest, dividends, pensions and rents, unless a law or treaty exempts it. Pub 17 no longer has dividend, rental or pension chapters; Pubs 550, 527 and 575 carry them (page 4).
| Chapter (2025 pages) | What it says about foreign items | Hand-off |
|---|---|---|
| 6, Interest (54 to 61) | Report foreign interest with or without a Form 1099. Schedule B Part I applies once taxable interest tops $1,500. Box 6 of Form 1099-INT shows foreign tax. | Pub 550 and your Form 1040 instructions (we add Pub 514 for the credit) |
| 7, Social Security (62 to 66) | Foreign social security is not covered. It is taxed as an annuity unless a treaty exempts it or treats it as U.S. social security. | Pubs 915 and 519 |
| 8, Other Income (66 to 77) | A gift or inheritance is not income, but what it later earns is (page 76). | Pub 575 for inherited pensions |
How do I report interest from an NRE account, an NRO account or a Canadian bank?
Pub 17 stops at "report it"; the open questions are source-country tax, the credit and the exchange rate.
| Interest from | Source-country position | On the U.S. return |
|---|---|---|
| Canadian bank or GIC | Article XI (replaced in 2007): taxable only where the owner lives, apart from profit-linked interest | Line 2b, Schedule B |
| Indian NRE or FCNR(B) deposit | RBI's FAQ calls NRE and FCNR(B) income exempt; the CBDT FAQ ties the NRE exemption to FEMA non-resident status, so your Indian CA confirms | Taxable; no Indian tax, so no credit |
| Indian NRO deposit | Taxable in India, tax deducted at source; treaty cap 15% (10% on a bank's loan) | Taxable; credit only tax at the treaty rate |
India's exemption does not travel: Article 1(3) of the India treaty lets the United States tax its citizens and residents as if the treaty did not exist, and Article 1(4) lists no exception for interest. The 15% cap is our reading for deposits, since the 10% rate is for loans a bank grants. See the US-India treaty guide and the NRE, NRO and FCNR guide.
Report in dollars at a posted rate used consistently; the IRS yearly averages below are simplest. Year-end values on Form 8938 use Treasury's rate for the last day of the year in most cases.
Dividends and funds
Dividend treaty caps: Canada 5% for a company owning 10% or more of the voting stock, otherwise 15%; India 15% or 25% on the same split. An individual gets the higher rate. These are ceilings, so a lower domestic rate still applies. Tax withheld above the cap can be reclaimed, so Pub 514 counts only the amount at the treaty rate as creditable.
A foreign dividend is taxed at capital gain rates only if the payer is a qualified foreign corporation. Pub 550 (2025, page 29) lists Canada and India among the treaty countries, but a company that was a PFIC in the payment year or the year before does not qualify. We found no IRS list naming the Canadian or Indian funds that are PFICs, so test each fund against the 75% passive income and 50% passive asset tests; most Canadian funds that hold securities meet one of them. See Form 8621 and Canadian mutual funds and PFIC.
How are Canadian and Indian pensions and social security taxed on a U.S. return?
Report distributions from foreign pension plans on Form 1040 lines 5a and 5b (Form 1040 instructions, page 23).
| Payment | Treaty rule | U.S. result |
|---|---|---|
| U.S. Social Security to a U.S. citizen living in Canada | Canada treaty Article XVIII(5): taxable only in Canada, which exempts 15% | Exempt from U.S. tax (Pub 915, page 5); the saving clause leaves paragraph 5 alone |
| CPP or OAS to a U.S. resident | Article XVIII(5): treated as paid under U.S. social security law; the 1997 Technical Explanation names OAS | Line 1 of Pub 915 Worksheet 1; taxable part runs from nothing to 85% |
| U.S. Social Security to a person in India who is not a U.S. citizen or resident | India Article 20(2): taxable only by the paying country | United States taxes 85% at 30%, 25.5% in effect |
| Private pension, Indian or Canadian employer, to a U.S. citizen or resident | India Article 20(1): taxable only where the recipient lives, but the saving clause still reaches U.S. citizens. Canada Article XVIII(1) and (2): Canada may tax a periodic payment up to 15% | Taxable, lines 5a and 5b; credit the Canadian tax |
| Indian EPF or EPS payout | Article 20(3): a pension is periodic; a lump sum is Other Income (Article 23). Social security status is unsettled | Document a position; see the EPF guide |
The US-Canada totalization agreement has applied since 1 August 1984, while SSA's list of 31 agreements omits India. The Social Security Fairness Act ended the windfall elimination provision for benefits payable for January 2024 and later.
What about foreign rent and gifts?
Chapter 8 covers only rent from personal property (page 71). Rent from a flat in Pune follows the rental rules in Pub 527. Canada requires the payer to withhold 25% of gross rent paid to a non-resident, and the owner can elect under section 216 to be taxed on net rent and recover any excess (guide). Form 3520 applies once gifts from a nonresident alien individual or foreign estate pass $100,000 in a year (guide).
By tax year: 2023, 2024, 2025 and 2026
| Tax year | IRS average, CAD per USD | IRS average, INR per USD | Treasury 31 Dec, CAD | Treasury 31 Dec, INR | Schedule B threshold |
|---|---|---|---|---|---|
| 2023 | 1.350 | 82.572 | 1.326 | 83.162 | $1,500 |
| 2024 | 1.370 | 83.677 | 1.438 | 85.577 | $1,500 |
| 2025 | 1.398 | 87.133 | 1.369 | 89.854 | $1,500 |
| 2026 | not yet published | not yet published | published after year-end | published after year-end | $1,500 on the IRS draft 2026 Schedule B (not final) |
The windfall elimination provision applied through December 2023 and not afterwards. Indian income through 31 March 2026 falls under the Income-tax Act, 1961 and later income under the Income-tax Act, 2025. 2026 planning figures; Pub 17 (2026) is not yet published.
A short example
Rohan, a single U.S. citizen in Naperville, has C$1,398 of Toronto interest, INR 400,000 of NRE interest and INR 200,000 of NRO interest with INR 60,000 deducted at source (tax year 2025).
- Convert at the IRS 2025 averages: C$1,398 ÷ 1.398 = $1,000.00; INR 400,000 ÷ 87.133 = $4,590.68; INR 200,000 ÷ 87.133 = $2,295.34.
- Total: $1,000.00 + $4,590.68 + $2,295.34 = $7,886.02. That tops $1,500, so Schedule B Part I applies.
- Credit: 15% × INR 200,000 = INR 30,000, or $344.30. The other INR 30,000 ($344.30) is reclaimed from India. Pub 514 uses the withholding-date rate for tax paid; one average rate keeps this short.
Mistakes to avoid
- Treating NRE or FCNR(B) interest as exempt in the United States.
- Crediting everything a bank withheld instead of the amount at the treaty rate.
- Taxing CPP or OAS at a flat 85%, or taxing U.S. Social Security of a citizen living in Canada.
- Skipping the PFIC test for a pooled fund.
Check yourself
Question 1 (tax year 2025)
Mira has C$2,100 of Toronto interest and INR 160,000 of NRE interest. At the IRS 2025 averages, what is the total in dollars, and is Schedule B needed?
Answer: C$2,100 ÷ 1.398 = $1,502.15 and INR 160,000 ÷ 87.133 = $1,836.27, a total of $3,338.42. That is over $1,500, so Schedule B Part I is required.
Question 2 (tax year 2025)
A bank deducts INR 60,000 from INR 300,000 of NRO interest. At the 15% cap and 87.133, how much is creditable and how much is reclaimed from India?
Answer: 15% × INR 300,000 = INR 45,000, or $516.45 creditable. The other INR 15,000, or $172.15, is reclaimed.
Question 3 (tax year 2025)
Lakshmi, single, receives C$27,960 of CPP and OAS and has $22,000 of other taxable income, with no tax-exempt interest or adjustments. How much of the benefit is taxable?
Answer: C$27,960 ÷ 1.398 = $20,000. Half ($10,000) plus $22,000 is $32,000, which is $7,000 over the $25,000 base and inside the $9,000 first tier. So 50% × $7,000 = $3,500, under the 85% cap of $17,000.
Question 4 (tax year 2025)
Daniel, a U.S. citizen living in Calgary, receives U.S. Social Security. Does the United States tax it?
Answer: No. Pub 915 exempts U.S. citizens resident in Canada, and the treaty leaves the tax to Canada.
Question 5 (tax year 2025)
Sunita, an Indian citizen with no U.S. status, lives in Pune and receives $18,000 of U.S. Social Security. How much U.S. tax applies if 85% is taxed at 30%?
Answer: $18,000 × 85% = $15,300, and $15,300 × 30% = $4,590. The India treaty leaves the taxing right with the paying country.
How we can help
We are a U.S. CPA firm in the Aurora, Illinois area. We handle the U.S. side, including Schedule B, the foreign tax credit and the FBAR, and we coordinate with your Canadian CPA or Indian Chartered Accountant so the filings agree. See foreign account and asset reporting and cross-border tax services.
Frequently asked questions
Do I report Canadian or Indian interest if no Form 1099 arrives?
Yes. Pub 17 says foreign income is reportable whether or not the foreign payer sends a form.
Does the India treaty exempt my Indian pension from U.S. tax?
No. The treaty leaves a private pension to the country where you live, which is the United States for a U.S. resident, and the saving clause lets the United States tax its citizens wherever they live.
Is my CPP benefit taxed in the United States?
For a U.S. resident, yes, as U.S. Social Security is taxed: the taxable part depends on total income.
Official sources
- IRS Publication 17 (2025), chapters 6, 7 and 8
- IRS Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits
- IRS Instructions for Form 1040 (2025), foreign-source income
- Convention between the United States and Canada, with protocols through 1997 (IRS)
- Protocol of 21 September 2007 amending the Canada-United States convention (Treasury)
- Convention between the United States and India (IRS)
- IRS yearly average currency exchange rates
This page summarizes public guidance in plain language. If anything here differs from the official source, the official source controls.
General information only. It is not tax, legal, accounting or immigration advice for your situation, and rules change; confirm the current rules with the official source or a licensed professional in the relevant country.